Unilever: Consumer confidence remains 'fragile'

The fragile recovery in developed markets could make it hard to pass on rising raw materials costs in the second half, Unilever has warned.

The firm, which posted a 3.6% rise in underlying sales in the second quarter, said underlying volume growth was up 5.7% over the period, but warned of heightened competition and higher raw materials costs in the second half.

Sluggish sales in Western Europe, especially in Greece (where volumes were down "substantially"), Spain and Italy, were offset by strong growth in emerging markets, said chief executive Paul Polman (pictured).

"We continue to operate under the assumption of slow economic growth, particularly in developed markets where consumer confidence remains fragile.

“We do not expect competitive pressures to ease and our ability to increase prices will remain constrained despite rising commodity costs in the second half.”

However, gross margins continued to improve, allowing the firm to up advertising and promotional spend while still delivering improved underlying operating margins. Operating profit was up 23% to €1.628bn over the period.

Underlying sales in Western Europe were down 2.2% with volumes down 0.3%. However, excluding Greece, volume growth was positive in the region, said Polman.

Weathering the storm

Panmure Gordon equity research director Graham Jones, who had forecast like-for-like sales growth of 3.4% and volumes up 4.3% over the period, said the figures were good: “In the context of the gloom coming out of some of its US peers, we think Unilever’s second-quarter results are good. Volume growth and volume markets shares remain robust.”

Trading conditions were difficult, he said, “but we believe Unilever is weathering them well”.

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